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Essay / Research Paper Abstract
A 30 page paper discussing influence of alpha and beta relative to mutual funds. The approach of this paper is conceptual rather than practical or mathematical. It reviews current and historic literature and components necessary to producing alpha. Among these are the efficient markets hypothesis, alpha, beta and the capital asset pricing model. In terms of estimating the dynamics between alpha and beta, despite the drive to generate, sustain and revel in alpha, it can be cautiously predicted with beta and the CAPM. Bibliography lists 50 sources.
Page Count:
30 pages (~225 words per page)
File: CC6_KSstkAlpBeta.rtf
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Unformatted sample text from the term paper:
Markets Hypothesis 3 Beta 5 The Capital Asset Pricing Model 6 Alpha 7 Analysis 7 Beta 7 General and Specific Risk 9 Indicating Diversification 10 Problems with Beta 12 Types of Risk 15 Specific Risk 15 Systematic Risk 16 The Capital Asset
Pricing Model 19 Testing CAPM 19 Limitations 20 Use of CAPM to Determine a Discount Rate for Risk Adjustment 21 The Security Market Line 23 Opportunity Cost 25 The Time Value of Money 25 Return Hurdle Requirements 26
Alpha 27 Discussion 28 Conclusion 31 Abstract The approach of this paper is conceptual rather than practical or mathematical. It will review current literature
and components necessary to producing alpha. Among these are the efficient markets hypothesis, alpha, beta and the capital asset pricing model. In terms of estimating the dynamics between
alpha and beta, despite the drive to generate, sustain and revel in alpha, it can be cautiously predicted with beta and the CAPM. Introduction
The primary purpose of the mutual fund is to diversify investment risk incurred in owning only single stocks. Of course every investor seeks greater return without increasing risk,
the quantity of which when realized is alpha. The problem to address here is whether how to estimate the dynamics of mutual fund alphas and betas.
The concept of beta is well known, even though beta as a measure often is referred to as a measure of risk, which it is not.
Rather, it is a measure of the movement of the price of a stock in relation to the movement of the market. Alpha is more imprecise. "This
is the essence of alpha: Extra return without extra risk. When an investor has generated alpha, it means he got more return than his level of risk warranted" (The
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